An Ounce Of Prevention: Review Of The Current Healthcare Fraud Enforcement Environment
Todd P. Swanson
Chilivis Cochran Larkins & Bever LLP
3127 Maple Dr., N.E.
Atlanta, Georgia 30305
Table of Contents
- Pervasiveness of the Healthcare Fraud
- Recent Expansion of the False Claims Act
- Expansion of the FCA resulting from FERA
- Expansion of the FCA resulting from PPACA
- Historical Use of the FCA to Enforce of Healthcare Fraud
- Recent Enforcement Initiatives
- Preventative Measures
An Ounce of Prevention: Review of the Current Healthcare Fraud Enforcement Environment
Over the past two years, the Federal Government’s approach to healthcare law enforcement has become significantly more active. This increase in activity has been triggered not only by increased funding for healthcare fraud enforcement, but also by recent legislative provisions that expand fraud and abuse exposure for healthcare providers under the False Claims Act (“FCA”). In light of these developments, corporate healthcare clients are more dependent than ever on competent counsel to investigate potential healthcare law violations and to defend them if the Government begins an investigation of their own into the client’s activities.
However, preventing (or minimizing) institutional healthcare fraud is the best medicine. To take such prophylactic measures, counsel must be familiar with the current changes in federal healthcare regulation and recent enforcement initiatives taken by federal law enforcement. This paper will focus on the recent expansion of the FCA, and the Government’s recent initiatives in enforcement under the FCA.
Pervasiveness of the Healthcare Fraud
On January 28, 2010, at the National Summit on Healthcare Fraud, Attorney General Eric Holder described healthcare fraud as a serious problem whose scope is “simply shocking,” noting that more than $60 billion in public and private healthcare spending is lost to fraud each year. Attorney General Holder also echoed the concerns of HHS Secretary Kathleen Sebelius when he admitted that, due to the size and amount of money involved in the national healthcare system, “so long as healthcare fraud pays and these crimes go unpunished, our healthcare system will remain under siege.” However, according to some experts, the $60 billion dollar healthcare fraud figure cited by Holder may in fact be too conservative of an estimate of the amount of money lost to healthcare fraud each year.
In May 2009, while testifying before the Senate Committee on the Judiciary: Subcommittee on Crime and Drugs, Malcolm K. Sparrow, a Harvard Professor of Public Management and expert in fraud detection and control strategy, stated:
The units of measure of losses due to healthcare fraud and abuse in this country are hundreds of billions of dollars per year. We just don’t know the first digit. It might be as low as one hundred billion. More likely it is two or three. Possibly four or five. But whatever that first digit is, it has eleven zeros after it.
Other experts agree with Sparrow’s conclusions, putting the estimated annual loss between $70 and $100 billion. Illustrated another way, some 10-20% of the annual Medicare and Medicaid budget is spent on fraudulent or false claims.
Regardless of the actual number, losses from healthcare fraud are staggering. Statistics like this have motivated law makers to expand exposure of healthcare providers under the FCA, and have motivated the present administration to increase funding of healthcare fraud prevention and to expand the use of the FCA to guard against healthcare fraud.
Recent Expansion of the False Claims Act
On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act (“FERA”). Less than a year later, on March 23, 2010, the President signed the Patient Protection and Affordable Care Act (“PPACA”). The passing of these two laws within the last two years has significantly expanded the exposure of healthcare providers that receive federal funds.
Expansion of the FCA resulting from FERA
FERA expanded both the procedural and substantive provisions of the FCA. As to the procedural changes to the FCA, FERA resolved two important areas of ambiguity present in the FCA. First, FERA specifically provides that the Government’s complaint-in-intervention, which typically replaces, amends, or adds to the relator’s complaint under seal, relates back to the date of the filing of the relator’s complaint. FERA also resolved ambiguity relating to the requirement that relators provide the Government with a “written disclosure of substantially all material evidence.” Before FERA, it was unclear whether the FCA permittedqui tam relators to also assist state and local enforcement agencies while the relator’s complaint was under seal. Now, relators are clearly “not preclude[d]” from serving on state or local officials the Complaint, other pleadings and the written disclosure of substantially all material evidence. FERA also expanded the ability of the Government to use civil investigative demands (“CIDs”) beyond what is permissible under FERA. Whereas CIDs were only occasionally used in the past, under the Attorney General’s new power to delegate the authority to issue CIDs, use of such devices will become common practice. The result of this significant procedural expansion is that the Government may now use interrogatories in the form of CIDs to aid in its civil or criminal investigations of whistleblower claims.
Substantively, FERA has eliminated the FCA’s prior intent requirement. Before FERA, liability under the FCA existed only where the individual “knowingly” made, used or caused to be made or used, a false record or statement “to get a false or fraudulent claim paid or approved by the Government.” FERA the words “to get” and “paid or approved by the Government,” such that healthcare providers are now liable under the FCA upon a showing that the false statement at issue is material to a false claim.
This significant change is coupled with a more expansive definition of the term “claim,” which now means “any request or demand, whether under contract or otherwise, for money or property and whether or not the United States has title to the money or property.” This amendment allows the Government to pursue false claims for payment occur through the submission of indirect false claims for payment, that is false claims to third-party contractors or other intermediaries as opposed to directly to the Government.
Perhaps most significantly, FERA also expands the “reverse false claims” provisions of the FCA. After FERA, a reverse false claim exists where an individual “knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” This amendment removes the old requirement that the offending person take an affirmative act to conceal, avoid, or decrease their obligation to pay. Now, all that is required is that the offending party “know” that they are in receipt of or have retained money to which they are not entitled, i.e. an overpayment. The implications of this amendment are significant; if the recipient were to discover that they received an overpayment because of a systematic or automated flaw in their billing system, the knowledge of this single incident of overpayment would impute knowledge of a potential overpayment to all transactions using that same defective system – resulting in a massive obligation to repay, and if not repaid, a massive reverse false claim (which may include liability for treble damages).
Expansion of the FCA resulting from PPACA
Although FERA’s changes also expanded the class of persons protected from retaliation to also include contractors and agents, as opposed to just employees, the bigger changes to the FCA (from the whistleblower’s perspective) came from the PPACA. The PPACA has softened the “public disclosure jurisdictional bar,” a provision that removed a court’s jurisdiction where the relator’s suit is based on publicly disclosed information “in a criminal, civil, or administrative hearing” as well as publicly disclosed information in a news media report or any number of other Government reports, hearings, audits, or investigations.This jurisdictional restriction was formerly a defendant’s most significant defense to a qui tam suit, but has now been significantly limited. Before the PPACA, relators’ suits could not rely on publicly disclosed information from federal or state or local entities without stripping the court of jurisdiction over the suit. Now, “publicly disclosed information” includes only information disclosed in federal courts or by federal departments or agencies.Furthermore, the PPACA allows the Government to veto the imposition of a jurisdictional bar, even if the relator has relied solely on information publicly disclosed by federal agencies.
Finally, PPACA eliminated the “direct knowledge” requirement contained in the definition of “original source” – greatly expanding the number of persons who can bringqui tamactions. Now, a relator is considered an original source, and can avoid the jurisdictional bar, if their knowledge is (1) independent and (2) materially adds to the publicly disclosed allegations. The practical effect of this amendment is that a relator may make allegations based upon indirect or even secondhand knowledge.
Historical Use of the FCA to Enforce of Healthcare Fraud
The recent expansions of the FCA have significantly eased restrictions on filing a qui tamlawsuit. Not only is liability easier to prove, but the number of people capable of bringing a case and surviving the public disclosure jurisdictional bar will encourage the filing of qui tamcases. While the FCA applies to any recipient of Government money, these changes will most significantly affect the healthcare industry and healthcare providers. As of 2004, 80% of all qui tam cases were related to healthcare fraud – nearly double the percentage of healthcare cases just seven years earlier. Accordingly, much of the $2.2 billion in civil enforcement recoveries as well as the criminal prosecutions for healthcare fraud, described by Attorney General Holder at the National Summit, began with the filing of a qui tam complaint.
In terms of qui tam suits, whether the Government decides to intervene is the single greatest determinant of success, as well as the size of any recovery. This is apparent based upon data maintained by the Department of Justice’s civil division concerning all qui tam actions, healthcare and otherwise, filed from 1986 through 2009. That data shows:
|From 1986-2009||Settlement or Judgment Reached||Case Dismissed||Total No. Concluded cases||Success rate|
|DOJ Civil Division Intervened||1,076||58||1,134||95%|
|DOJ Civil Division Did NotIntervene||239||3,681||3,920||6%|
|All Cases (regardless of intervention)||1,315||3,739||5,054||26%|
Not only does Government intervention lead to an extraordinarily high success rate, but the Department of Justice data also reveals that Government intervention results in the relator’s 15-30% share historically being 28 times higher than if the Government declines to intervene.
Furthermore, according to the chart below, there is evidence that the returns for the Government are also greater where the qui tam case originates from a relator, as opposed to the Government’s own independent investigation.
Recent Enforcement Initiatives
Beginning in Miami in 2007, the Department of Health and Human Services (“HHS”) and the Department of Justice (“DOJ”) began a number of joint undertakings to combat healthcare fraud. On May 20, 2009, in a joint press release, Attorney General Holder and Secretary Sebelius announced the formal creation of the Healthcare Fraud Prevention and Enforcement Action Team, or HEAT Program. This program is characterized by a number of joint Strike Teams through which both HHS and DOJ are committed to engaging in data-focused investigations of potential healthcare fraud by pooling their data to discover billing trends that are indicative of fraud.
The first such Strike Team, based out of Miami and later dubbed “Phase One,” has been a resounding success in its first three years of existence, garnering more than $220MM in court-ordered restitution in 87 criminal cases involving 159 defendants. Along with the creation of HEAT, the proposed budget for fiscal year 2010 called for a 50% increase in spending on fraud and abuse enforcement and prevention, and a total of $1.7BB in projected spending over the next five years. In this manner, HHS and DOJ are seeking to “raise the stakes on healthcare fraud, with increased tools, resources and sustained focus by senior-level leadership.” The statement further opined that the HEAT program, along with the increase in proposed spending, could save the United States over $2.7BB over the next five years.
The National Summit on Healthcare Fraud, held in January 2010, was another initiative indicative of the new environment of healthcare fraud enforcement. At this conference, not only were the successes of the HEAT Program publicly announced, but officials from both the public and private sector engaged in closed-door discussions for purposes of determining how best to curb healthcare fraud throughout the United States. Furthermore, by emphasizing the successes of the Government’s new focus on healthcare fraud, by unveiling proposed budgetary increases, and by inviting leaders in the private sector to participate in the healthcare fraud discussion, the Government is reminding the private sector that there is more than enough success, and money, to go around. Such activities, coupled with the strengthening of the FCA, are likely to contribute to a significant increase in qui tam suits in the near future.
While the true impact of FERA and PPACA may not be felt for years, the recentAllergan case in the Northern District of Georgia offers some insight into the type of exposure a company may face in a whistleblower suit. In this case, Allergan, the makers of Botox, agreed to pay $600MM and plead guilty to a federal misdemeanor to settle civil and criminal charges that it had illegally promoted and sold Botox for unapproved uses, namely treating headaches. These charges arose out of the initial whistleblower suit, the Government’s investigation of which led to allegations of kickback and fraud violations. The qui tam suit was resolved for $225MM of the $600MM that Allergan paid as part of the global settlement. From the perspective of the corporate healthcare client, however, the important take away point is that the bringing of the $225MM civil suit led to an overall payment of $600MM and a criminal conviction.
In light of the changes to the FCA, from the perspective of corporate healthcare providers, a key prophylactic measure to limit the corporate client exposure in the new healthcare enforcement environment is to minimize qui tam suits. To do this, corporations must ensure that they have in place policies and procedures designed to address the most recent changes in the FCA. Furthermore, in light of the softened intent requirements of the current FCA, corporations should be more conservative than before on “close” cases where it is unclear that an FCA violation might have occurred. Indeed, many corporate healthcare providers may consider governing their conduct as if they are already operating under a Corporate Integrity Agreement with the Government. This is particularly true in light of the expansion of the “reverse false claims” provisions, under which a false claim exists where an individual simply retains money to which he or she or it knows they are not entitled. Finally, fostering a corporate culture in which compliance is not a secondary concern, but a primary concern, may also aid in preventing the creation of whistleblowers, since such an environment may encourage problems, if they arise, to stay in house and be resolved via a self-report or other less costly measure.
Todd P. Swanson is an Associate at the law firm of Chilivis, Cochran, Larkins & Bever, LLP.
 Benjamin Franklin, Poor Richard’s Almanac (1733).
 Attorney General Eric Holder, Remarks at National Summit Healthcare Summit (January 28, 2010) (transcript available at http://www.stopmedicarefraud.gov/innews/holderremarks.html).
 Malcolm K. Sparrow, Testimony at “Criminal Prosecution as Deterrent to Healthcare Fraud” before Senate Committee on Judiciary: Subcommittee on Crime and Drugs (May 20, 2009) (transcript available at http://www.hks.harvard.edu/news-events/testimonies/sparrow-senate-testimony) [hereinafter “Sparrow Testimony”].
 Rudman, et al., Healthcare Fraud and Abuse, 6 Perspectives in Health Information Management 1 (Fall 2009); Association of Certified Fraud Examiners, Healthcare Fraud, available at www.acfe.com/resources/fraud-101-healthcare.asp (last visited February 23, 2009).
 Sparrow Testimony, supra.
 31 U.S.C. 3731(c), which reads:
For statute of limitations purposes, any such Government pleading shall relate back to the filing date of the complaint of the person who originally brought the action, to the extent that the claim of the Government arises out of the conduct, transactions, or occurrences set forth, or attempted to be set forth, in the prior complaint of that person.
 31 U.S. C. 3732(c).
 31 U.S.C. 3733.
 31 U.S.C. 3729 (1994), amended by Pub. L. No. 111-21, 4, 2009 Stat. 386 (2009).
 Fraud Enforcement and Recovery Act, Pub. L. No. 111-21, 4, 2009 Stat. 386 (2009).
 31 U.S.C. 3729 (2009).
 31 U.S.C. 3729(b)(2).
 31 U.S.C. 3729(a)(1)(G).
 31 U.S.C. 3730(e)(4) (2009).
 Graham County Soil and Water Conservation District v. U.S. ex rel Wilson, — U.S. –, 130 S.Ct. 1396 (2010). It is important to note that this Supreme Court made it holding before the President signed the PPACA into law, but with knowledge that the PPACA had been passed by Congress. Accordingly, the law will only apply to cases pending as of March 23, 2010.
 31 U.S.C. 3730(e)(4)(2009), which now reads:
(4)(A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed–
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;
(ii) in a congressional, Government [FN2] Accountability Office, or other Federal report, hearing, audit, or investigation; or
(iii) from the news media,
unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(B) For purposes of this paragraph, “original source” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.
 Id., “The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed– . . .” (emphasis added).
 31 U.S.C. 3730(e)(4)(B).
 Jack A. Meyer, President, Economic and Social Research Institute, Fighting Medicare Fraud: More Bang for the Federal Buck, prepared for Taxpayers Against Fraud Education Fund (July 2006) available at http://www.taf.org/FCA-2006report.pdf (last visited February 27, 2010).
 John R. Phillips and Mary Louise Cohen, Failing to report Medicare billing errors: a very risky business, Journal of the Association of Healthcare Internal Auditor(Spring 1997).
 Taxpayers Against Fraud, Fraud Statistics – Overview, October 1, 1987 – September 30, 2009, Civil Division,, U.S. Department of Justice, available at http://www.taf.org/FCAstats2009.pdf.
 One explanation for the extraordinarily high success rate and high rewards is that the Government is able to engage in a more thorough fact investigation than a whistle-blowing relator and, to that end, is able to determine more accurately how good a case is before it decides whether or not to intervene.
 Taxpayers Against Fraud, The 1986 False Claims Act Amendments: A Retrospective Look at Twenty Years of Effective Fraud Fighting in America, p.5 (2006) (available at http://www.taf.org/retrospective.pdf) (last visited February 27, 2010).
 U.S. Dept. of Health & Human Services, Press Release, Attorney General Holder and HHS Secretary Sebelius Announce New Interagency Healthcare Fraud Prevention and Enforcement Action Team (May 20, 2009), available at http://www.hhs.gov/news/press/2009pres/05/20090520a.html. [hereinafter “May 20 Press Release”].
 Fact Sheet: Phase One Medicare Fraud Strike Force Miami-Dade County, Fla., p.1 available at http://www.stopmedicarefraud.gov/heatsuccess/heat_taskforce_miami.pdf (last visited February 24, 2010).
 John J. Carney and Robert M. Wolin, Target Healthcare Fraud, New York Law Journal, July 13, 2009.
 May 20 Press Release, supra.